JkMCk CkHC/CN1CRGY PROJCCT

FEIMIBILITY STUDY VOLUME 1

PREPARED BY:

RONCO CONSULTING CORPORATION

BECHTEL NATIONAL INC

FUNDED BY:

UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT

AND

THE TRADE AND DEVELOPMENT PROGRAM

SEPTEMBER 1986

JAMAICA CANE/ENERGY PROJECT

CONTENTS

ABSTRACT i

ACKNOWLEDGEMENTS ii

SECTION PAGE

1.0 EXECUTIVF SUMMARY 1-1

2.0 BACKGROUND 2-1

3.0 PROJECT RATIONALE AND SCOPE 3-1

4.0 MARKETING 4-1

4.1 SUGAR 4-1

4.2 MOLASSES 4-9

4.3 ELECTRICITY 4-11

4.4 ENERGY PRICES 4-28

5.0 FACILITY DESCRIPTIONS 5-1

5.,1 CANE PRODUCTION 5-1

5.2 SUGAR CANE PROCESSING 5-9

5.3 COGENERATION FACILITY 5-22

5.4 ENVIRONMENTAL ASSESSMENT COGENERATION POWER PLANT 5-88

6.0 COMMERCIAL STRUCTURE 6-1

6.1 OWNERSHIP AND MANAGEMENT 6-1

6.2 COMMERCIAL ARRANGEMENTE 6-1

7.0 PROJECT SCHEDULES 7-1

7.1 INTEGRATION WITH THE REHABILITATION PROJECT 7-1

7.2 DEVELOPMENT AND CONSTRUCTION 7-2

8.0 OPERATION PLAN 8-1

8.1 CANE PRODUCTION 8-1

8.2 BARBOJO PRODUCTION 8-17

8.3 CANE PROCESSING 8-21

8.4 STEAM AND ELECTRICITY 8-23

9.0 PROJECT COSTS 9-1

9.1 OPERATING COSTS 9-1

9.2 CAPITAL COSTS 9-14

10.0 ECONOMIC ANALYSIS 10-1

10.1 INTRODUCTION 10-1

10.2 CONVERSION TO ECONOMIC PRICES 10-3

10.3 CAPITAL COSTS 10-5

10.4 OPERATING COSTS 10-7

10.5 REVENUES 10-9

10.6 RESULTS 10-10

10.7 NATIONAL AND REGIONAL EFFECTS 10-12

11.0 FINANCIAL ANALYSES 11-1

11.1 SUGAR COMPANY OPERATIONS 11-1

11.2 FINANCIAL PLAN 11-5

11.3 METHODOLOGY AND ASSUMPTIONS 11-8

11.4 FINANCIAL STATEMENTS 11-14

11.5 SENSITIVITY ANALYSIS RESULTS 11-15

11.6 PROJECT RISKS 11-17

ACRONYMS AND ABBREVIATIONS

APPENDICES Vol. II

BSTRACT

This report evaluates the feasibility of a proposed steam-electric, cogeneration facility to be juxtaposed to Monymusk Factory, amajor sugar cane processing facility in the Clarendon Parish, Jamaica This power station improvement Is to be Integrated with a planned rehabilitation project to be undertaken during the next five years (Fi'al Years 1987 to 1991 ) for production equipment and facilities. The cogeneration facility would be constructed, begining in mid- 1988 and ctmmissioned Inmid- 1990.

Te Base Case of this evaluation has the cogeneration facility producing 330,000 pounds of steam per hour at 900 degrees F. and 900 psig (150,000 kg/hr, 480 degrees C. and 63.4 kg/square cm) from two steam generators for 323 days per year of scheduled operations. Annual production in the Base Case is for 785.9 million pounds [356.4 million kg.] of process steam supplied to the factory. Electricity to be generated, net of plant, is estimated at 171.1 million kWh with 145.241 million KWh available for sale to the national electrical utility. Fueling of the facility is mainly dependent on sugar cane derived biofuels, bagasse and barbojo (sun dried, cane trash) with No. 6 Fuel Oil used as an augmenting source to provide about 25 percent of the fueling on a heat input basis. Additionally, the Base Case predicts significant revenues from sugar and molasses sales (68,700 tons of 96 degree sugar and 29,682 tons of molasses).

The report concludes that an investment of USS47.7 million for the proposed power station would be financially feasible (Internal Rate of Return of 16 percent). The financial return was further enhanced (an IRR of 20 percent and an overall Economic Rate of Return or EER of 17 percent), when an added agricultural in~vestment of US$9 million is provided to assure the target level of sugar cane production each year. The Base Case electrical pricing for sale to JPS In 1990 was estimated to be cost-competitive with future coal-steam units at levelized 75 mills per kWh ( 1986 US Dollars).

The most important requirement for the achievement of the investment returns shown above is that annual cane I:roduction must be more than doubled from current levels to the target levels set by the Base Case.

ACKNOWLEDGEMENTS

This project's management must attempt the difficult task

of gratefully acknowledqing, without serious omission,

the numerous persons both here in Jamaica and overseas,

that materially contributed towards whatever success this

feasibility evaluation can rightfully claim as its own.

Certainly, the initiating and sustaininq efforts of

certain USAJD officers need to be sinqled out for clear

recognition: Alan Jacobs, Paul Weatherly, Joe Sconce,

Charles Mathews, Louis Reade, William McCluskey and

Julius Schlotthauer.

Contractual or inter-aqency transfer employees of USAID

that have been contributors included: Frank Tugwell, Al

Binger, Frank Ahimaz, Alex Alexander, George Samuels,

Henry Steinqass and John Kadyszewski. These names begin

an extended series of agency personnel and others that

have become involved in the project's complex

technical/financial/economic proposal and its careful

review. rhe early report entitled: "Jamaica Cane

Production for Suqar and Electric Power," September,

1984, focussed a large number of contributors, both

Jamaican and foreign, on the Jamaica cane/energy prospect

at the Monymusk Factory, and that contribution is again

acknowledged.

The followino technical team has been formed, over the

past seventeen months, to detail the project's

description and evaluate its technical, economic and

financial feasibility. The team members were orqanized

by Ronco Consultinq Corporation and Bechtel National

ii

Inc., for USAID/Kingston, for the preparation of a

"bankable document". D!. G. S. C. Wang, formerly with

Bechtel,had much to do with the project's formative

stages. Wayne Richardson, Jr. must be acknowledged as

the man who made the initial Hawaiian connection with the

project for USAID.

Technical Contributors

Ronco Consulting Corporation

Name Speciality

Dr. John C. Warner Sugar Cane Genetics and Agronomy

Dr. Allan L. Phillips, P.E. Barbojo Recovery Systems, Agricultural Engineer

Earl S. P. Smith, P.E. Sugar Cane Processing and Cogeneration Engineering

Mead A. Kirkpatrick Sugar Cane Production and Irrigation Specialist

John Denyes Production Cost Engineer and Financial Analyst

Russell Sowers Agriculturist, industrial Engineer and Irrigation Specialist (Resident)

John P. Keppeler General Manager (Resident)

Robert H. Hughes Senior Executive, Sugar Technologists and Peer Reviewer

Not named, but quietly acknowledged, is a very wide

circle of many colleagues in Hawaii, Louisiana, Florida,

Puerto Rico, Dominican Republic and Washington D.C. that

have been consulted about cane/enerqy issues.

iii

Bechtel National Inc.

Name

Duane E Deonigi

Adrian Schaefler

Wayne G. Mikutowicz

Gregory B. Kruse

C. Frederick Wall, P.E.

Daniel Eisinger

Richard R. Buta

A. Menendez

Michael H. Kappaz

Speciality or Title

Manager, International Planning, Research and Engineering

Agricultural and Resource Economist, Research and Engineering

Energy Planning, Research and Engineering

Financial Analyst, Research and Engineering

Supervisor, Engineering Geology, Geotechnical Services

Project Enqineer, Bechtel Power Corporation

Senior Business Development Representative

Project Manager, International Operations

Vice President and Manager, International Operations

The project's resident staff and visiting consultants

were able to gain the cooperation of a wide circle of

highly expertised contributors in Jamaica. Listing all

of the names would be impractical, but certain names must

be recognized: Frank G. Downie, Maurice W. Facey and the

Board of JSH, David Walder, Robert C. Campbell, Peter

Rubner, Ed Brown, Weldon Maddan, Robert Jump, J.S.

Archbell and the staff at Clarendon Sugar Company

(Monymusk Estate), Michael E. A. Shaw, Ian Sangster, John

Holmes, Robert F. Clarke, Trevor Donaldson, David C.

Henriques, Robert L. C. Henriques, Orville Cox,

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Owen Clarke, Peter D. McConnell, Ralph Thompson, Winston

Boyne, Clarence Franklin, T. G. Mignott, Hon. Dr.

Percival Broderick, Senator Huqh Hart, Stanley Rampair,

Tom Easterling, Ralph Robinson and Horace Tame.

Last but not least, the support personnel that physically

produced some part of this work product need to be

gratefully recognized:

Elaine E. Smith Agribusiness Analyst

Vanica Cranston Administrative Assistant

Neville Spike Business Analyst

Tanya Veira Typist

Dainty R. Burnett Secretary

Larson Lennon Staff Assistant

Recognition must also be included of the staff of

AGRO-21, Jamaica Conference Centre, SIA, SIRI and

USAiD/Kingston who kindly assisted us in a hundred ways.

Finally, Ron Boyd, Steve Edelmann, Jodee Solomon, and

Carolyn Boone of Ronco Consulting Corporation must be

thanked for keeping the technical team on the "straight

and narrow" and "within the Regs", on-time and within

budqet.

Mahalo Nui Loa (thank you, plenty big)

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1.0 EXECUTIVE SUMMARY

This report evaluates the technical, economic, and

financial feasibility of installing and operating a steam-electric power, cogeneration facility which

maximizes the use of sugar cane derived biofuel (i.e., bagasse and cane trash or barbojo). The proposed

facility in the study-will be located adjacent to the Monymusk Factory, and will be financed and organized as z private enterprise. In addition, this report evaluates the benefits that can be achieved by the sugar company through the maximization of sugar cane production and

processing.

The foci of the evaluations are as follows:

* Financial analyses of the proposed cogeneration

facility, its capital costs, annual operation and maintenance costs and the pricing of electricity

generated for intercompany exchange and external sale to the national utility, Jamaica Public Service

Company (JPS).

0 Financial analyses of the sugar company's operations at three levels of output in the production and processing of sugar cane, their capital costs beyond the currently planned rehabilitation project, and annual operating and maintenance costs.

* Economic analyses of the sugar cane production and processing operations, plus the cogeneration facility's operations and their joint impact on the overall Jamaican economy.

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This cogeneration facility will supply electricity and process steam to the rehabilitated Monymusk Factory and the sugar company. Electricity generated beyond the needs of the factory and its field operations will be

sold to the JPS to supply the national electric demand. Liring operation of the sugar cane crushing plant and boiling house, the cogeneration facility will have a peak gross capacity of 21 MW. (1) Peak gross capacity when the sugar factory is not in operation will be approximately

35 MW.

The envisioned facility would have two steam generators to produce 330,000 pounds of steam per hour [150,000 kg/hour] at 900 degrees F and 900 psig [480 degrees C and 63.4. kg per square cm]. In the Base Case of the

evaluation, an annual production of 785.9 million pounds (356.4 million kilograms] of steam is planned and 171.1 million kWh of electricity is to be generated. After satisfying the electrical requirements of the sugar operations, the amount of power that would be available

for sale to JPS is 145.241 million KWh per year.

The major fuels contemplated for the cogeneration power plant are cane-derived biofuels; namely, bagasse and barbojo (i.e., solar-dried cane tops and leaf trash).

The augmenting and back-up fuel is residual fuel oil, which will be consumed when bagasse and/or barbojo are

insufficient or not available. At the target projection or Base Case, with an annual sugar cane cropping of

742,050 tons, the fueling composition, on a percentage of

Footnote:

(1) MW is megawatt or one million watts (lxlO 6 watts)

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6

heat input basis, will be made-up of 75 percent biofuels,

51 percent bagasse and 24 percent cane trash (barbojo) as augmented by 134,900 barrels of No. 6 Fuel Oil. In the Best Case, with an annual sugar cane production of 850,000 tons, biofuels are anticipated to displace most of the augmenting fuel oil, leaving a requirement for

only 23,460 barrels, or less than five percent on a heat input basis.

The cogeneration facility has been evaluated as a

separate, privately owned company operating under a joint venture agreement with the Jamaica Sugar Holdings Limited (JSH). The agreement will provide for the joint management of the sugar cane production and processing,

the cogeneration operations, and for the exchange or sale of biofuels, process steam and electricity between both

companies and externally to JPS.

The development, construction, and operation of the

proposed facility has been carefully evaluated for integration and compatibility with the currently planned

factory and field rehabilitation project to be financed by the World Bank. This evaluation concluded that the

improvements to sugar cane production facilities, as presently funded, will not be sufficient to allow the crop to reach the target cane production level of 742,050 tons per year as contemplated under the rehabilitation project. Therefore, the report identifies certain additional investments required to reach the targeced level of production. In addition, the report identifies further investment to the field and factory facilities which could result in an eventual cane prduction and milling through-put at a maximum level of 850,000 tons

per year. The higher cane production and processinq

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capacity will result in substantial profitability to the JSH operations and lower electricity costs.

This report proposes an innovative biofuel recovery

system for production practice development by mid-1990,

the recovery of sugar cane trash (i.e., solar dried cane

tops and leaves or barbojo) from selected company

administered cane fields that have not been burned before manual harvesting, in order to save the cane trash for

deferred use as a boiler fuel. The proposed, mechanized barbojo recovery system is to be designed and production

proven, based on hay raking, baling, transport and

handling experience, as has been adapted for sugar cane in other production areas. The recovery system designed

must provide cost-effective biofuel production at the

74,000 ton level by the first year of the project's

operations (Fiscal Year 1991), in order to contribute

about 24 percent of the annual fueling on a heat input

basis.

The enormous agricultural production management

requirements to dramatically increase the cost-effective,

sugar cane outputs, by more than 225 percent of current

levels, in just five years, from the same land and water

resources, has been recognized by this report. Concurrently, the agricultural managers are to develop the barbojo recovery system into a profitable production operation that provides 24 percent or 74,000 tons of

fueling for the cogeneration facility. The agricultural division of the proposed operation will have a critical

influence on the success and profitability of both the

sugar and power companies.

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The earliest date for the start of operations for the cogeneration facility is estimated to be during July of

1990. Construction activites would begin 24 months

earlier in mid-1988. Total capital cost of the proposed

cogeneration facilities is estimated at US$47.7 million (in 1986 US Dollars) of which approximately 78 percent is

in foreign currency.

The report identifies a financing plan which features the

participation of foreign and Jamaican investors. Equity

financing for the cogeneration plant will be provided by

the owners in proportion to their ownership interests.

It is anticipated that the cogeneration company will

support up to 67 percent debt financing and the eauity

participants will fund 33 percent of the cogeneration plant's capital cost. A break down of equity and debt

financing by potential participants is as follows:

EQUITY DEBT

Jamaican 10% 11%

Foreign 23% 56%

The sources of debt financing assumed in the financial

plan for the cogeneration facility will not require

sovereign guarantees from the Government of Jamaica (GOJ).

The most important factor, which will affect the

economic/financial feasibility of the project, is the

quantity of sugar cane produced annually, and the derived

supply of bagasse and barbojo biofuel. in order to identify the impact of variable production levels, the

report evaluates three scenarios or cases for the production of sugar cane, bagasse and barbojo:

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CASE 1: This case assumes that the total production of sugar cane will not exceed 600,000 tons after the completion of the planned rehabilitation project. The case assumes that only modest investments will be made to the suqar factory and sugar cane production facilites beyond whac is contemplated in the rehabilitation project.

The case also assumes that iso investment will be made for the collection and processing of cane

trash (barbojo).

CASE 2: This case assumes that the total production of sugar cane will reach the target of 742,050 tons that is set under the planned rehabilitation project. Case 2 includes the added capital

expenditures, beyond the funding of the World Bank project, which will be required to reach 742,050 tons. These added capital expenditures

are for improvements to the irrigation system for the administration area. The case also includes the capital expenditures required for supplying up to 74,000 tons of cane trash (barbojo) each year, at 35 percent moisture, to the cogeneration facility for deferred

combustion.

CASE 3: This case assumes that the total production of surjar cane be tons. Case 3will 850,000 includes the added capital expenditures that will be required to reach that production level. Those expeaiditures involve fu'ther improvements to company irrigation systemls. In addition, some added improvements to the factory have been included to allow it to process the larger cane

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!0.

harvest. Case 3 also includes the capital expenditure required for supplying up to 127,500

tons of barbojo each year, at 35 percent

moisture, to the cogeneration facility for

deferred combustion.

Table 1-1 summarizes the economic benefits of each of the

cases, expressed in terms of overall rate of return and

foreign exchange savings, for a combined operation of the

sugar factory, the sugar cane production facilities and,

the cogeneration facility.

Based upon these results it is concluded that there are

obvious economic benefits of increasing the sugar cane

production, maximizing the supply of biomass fuel, even

with the additional investments required to reach those

higher levels of annual production.

The national and regional effects of this project are:

* Further bolsterinq of the existing, significant

agro-industrial employment base, provided by a

revitalized JSH and its planned rehabilitation

project.

* Net foreign exchange savings, estimated at US$7

million per year, for the life of the project. * Increased governmental receipts of an estimated

average of US$2 million per year over the life of

the project.

* Satisfying needed electrical generation capacity in

1990 and thereafter, without incurring foreign

indebtedness, which represents an annual benefit of

US$5 million, over a ten (10) year repayment period.

* Added new employment during the project's

construction phase, and during the installation of

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the irrigation system improvements, of 840

man-years, plus the establishment of additional 220

production jobs, or about 120 man-years for each

year of the project life.

Implementation of the project will also have a positive financial effect on JSH for all of the cases. These benefits are derived from increased sales of sugar and molasses, cost-effective supply of process steam and electricity, and from the sale of cane trash (barbojo) to

the cogeneration faciltity. In addition, if the best

production case is achieved, a substantial portion of the savings resulting from fuel oil substitution will be

passed on to JPS in the form of lower electricity costs.

In the financial evaluation of the cogeneration facility, the target level of production (742,050 tons of cane per year) of the rehabilitation project was selected as the

Base Case, for the estimating of the price of eletricity

to be sold to JPS. The Best Case production (850,000 tons of cane per year) was also analysed, with the

assumption that the potential fuel oil savings would be

equally divided between the parties at interest.

During the pricing calculations at the two forecasted

levels of sugar cane production, Base Case and Best Case, the cost of electricity from the cogeneration facility

was compared to the cost of electricity from future

coal-fired expansion units, under contemplation by JPS

for the early 1990's. The results of that comparison

indicate that the price would be lower from this

cogeneration plant than from coal-fired units.

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The production risk of a significant biofuel shortfall to

the cogeneration plant, and the impact of changing the

fueling composition on the pricing of electricity, and/or

the return on the investor's equity, will be a central

topic of discussions with the Government of Jamaica.

These negotiations will establish the allocation of the

risks and benefits between the parties at interest.

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TABLE 1-1

OVERALL ECONOMIC BENEFITS ESTATE/FACTORY/COGENERATION PLANT

SUGAR CANE PRODUCTION: (TONS PER YEAR) 600,000 742,050 850,000

Overall Economic Rate 8% 17% 21% of Return

Net Present Value -5.8 28.4 51.6 (US DLRS Millions) @ 10%

Foreign Exchange Savings -1.2 4.0 7.6 (US DLRS Millions)(1 )

Footnote:

(1) These are the average annual savings over the lifetime of the project (30 years) expressed in constant 1986 US dollars.

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2.0 BACKGROUND

The Government of Jamaica (GOJ) has sought means to

increase the nation's energy independence. Increasing

its energy self-sufficiency would assist in stabilizing

the important cost of energy to the country and in

helping to conserve the foreign exchange now required to

buy the needed fossil fuels that are produced overseas

and will eventually be depleted. Virtually all Jamaican

energy is based on imported petroleum resources; mainly

by importing Venezuelan and Mexican crude oil. Several

strategies were started to conserve the use of essential

energy, to explore for possible petroleum resources on

the island, and to expand the use of or newly develop

indigenous and renewable sources of energy (i.e., solar,

biomass, hydro, etc.)

The United States Government throuqh its Agency for

International Development (USAID) sought to be of

assistance to GOJ in the energy planning and development

area through the establishment of the Energy Sector

Assistance Loan Program in 1981. The purpose of that

program was to study and implement encouraging

governmental actions to conserve energy and to develop

alternate energy resources. The Jamaica Energy Cane

Project, that has supported this technical, financial and

economic feasibility evaluation of the better use of a

major biomass resource, is part of that GOJ/USAID

initiative.

Concurrent with the initiative in the energy sector, GOJ

sought to restructure the Jamaican suqar cane industry to

make it profitable and sized to meet current market

demand. The European Economic Community (EEC) market for

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sugar through sales to the United Kingdom and the

domestic sugar requirements provide most of the assured

annual market demand for Jamaica's sugar cane. A very

small and uncertain sugar quota in the United States

completes the makeup of a protected market for Jamaican

sugar. A ready market is domestically available for all

the molasses produced.

In the sugar cane industry rationalization process, GOJ

designated for closure and re-direction certain of its

factories and canelands, and these facilities and lands

are in the process of being redeployed at the present

time. The two keystone production and processing

facilities of the Jamaican sugar cane industry, that are

owned and formerly were directly operated by GOJ -

Monymusk and Frome - were recently corporately

reorganized and are now managed by Jamaica Sugar Holdings

Limited (JSH). As the agent for GOJ, JSH is to manage an

extensive rehabilitation program financed by the World

Bank (International Bank for Reconstruction and

Development - IBRD) to be implemented during the next

five years, as well as running the day-to-day affairs of

the company. The Bank's second rehabilitation program

(the first rehabilitation program begun in 1978 was not

fully successful) will complete long deferred equipment

and facility maintenance and replacement at Monymusk and

Frome, to restore their productivity. These

rehabilitative actions are considered essential to

keeping Jamaica in the sugar producing business as an

extension of its long history as a major sugar producer

in the Commonwealth.

Early in the GOJ/USAID Energy Sector Assistance Program,

the interest in enhancing the use of sugar cane as a

renewable and indigenous enerqy resource was pursued.

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Sugar cane had long been the major cropping activity in

Jamaica with over 2.2 million tons(l) of millable canes

being produced each year from about 90,000 acres [36,450

hectares] and processed through nine sugar factories.

This major island agro-industry offers a potentially

attractive focal point for new or expanded indigenous

energy development.

Certain natural energy research subjects, such as:

intensive production of higher performance and high fiber

sugar cane varieties, utilization of solar-dried sugar

cane tops and leaves (cane trash or barbojo) as a

biofuel, production and use of related tropical grasses

for supplemental biofuels, etc. were evaluated for

application in Jamaica. In that review the established

success of using high performance steam/electric

generating equipment at Hawaiian sugar cane processing

facilities for cogeneration of process steam and

electricity with the sale of surplus electricity to the

electrical utility was of keen interest to GOJ. As a

result in 1984, a GOJ/USAID sponsored pre-feasibility

report proposed the enhanced use of sugar cane as an

expanded alternative energy resource at Monymusk. This

Cane/Energy proposal recommended the generation of steam

and electricity in high performance equipment from firing

bagasse (i.e., the fibrous residue of sugar cane

processing) and introduced the idea of new sugar cane

Footnote:

(1) References to tons in this report are to long tons of 2240 pounds unless specifically called tonnes or metric tons at 2205 pounds or short tons at 2000 pounds.

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varieties with higher fiber composition, thereby

increasing their calorific value. The 1984 study

discussed the possibility of using cane trash (barbojo)

as a supplemental biofuel for combustion during the

"off-crop" period, as well as other tropical grass and

wood species to increase the biomass in the fuel mix and

reduce the use of imported No. 6 Fuel Oil (Bunker C Oil).

Following the 1984 pre-feasibility evaluation of the

Jamaica Energy Cane Project, this feasibility study was

enabled in May, 1985. The objective of this evaluation

was to prepare a "bankable" document to become the

centerpiece for discussions leading to the formation of a

joint enterprise to organize, finance, finally design and

construct the proposed power generating facility. The

proposed cogeneration improvement is to be a fully

integrated development with the long planned

rehabilitation of the factory and facilities as financed

by the World Bank and administered by JSH.

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3.0 PROJECT RATIONALE AND SCOPE

imported fuel oil has had and will continue to have a

major command on the use of Jamaican foreiqn exchange

resources. One of the largest consumers of fuel oil is

the Jamaica Public Service Company (JPS) for the

generation of electricity dispatched through-out the

island-wide power grid. Demand for electricity will

continue to increase with development and the growth of

the population on the island. Meanwhile, an indigenous,

renewable resource, biofuel for electric power, has been

under-utilized, as the island's sugar cane processing

equipment has not been allowed to progress with

technological developments. As a consequence, the full

fuel potential of Jamaican sugar cane bagasse is being

wasted because higher efficiency, bagasse-fired

boiler/turbogenerators, that can generate more

electricity than the current equipment, have not been

employed. This project proposes to apply this available

power generating technology on an initial site in Jamaica

to begin to significantly reduce the requirements for

imported fuel oil.

The island of Jamaica does not have oil or coal reserves

and must depend on the importation of most of its energy

from abroad. The purchase of petroleum dominates

Jamaica's oversea's purchases, paid for in dear foreign

exchange and essential to run the national economy. in

1985 that oil requirement amounted to 8.2 million barrels

at an annual cost of US$228 million(l) (The Hon. Hugh

Footnote:

(1) All references made to US Dollars at a Jamaican Dollar exchange rate of 5.5 to one US Dollar.

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Hart, Minister of Mininq, Energy and Tourism, The Sunday

Gleaner, March 2, 1986, pg 1). This energy expenditure

represents a significant external burden on the national

economy. Although recent oil prices have been suddenly

reduced by half, it is anticipated that this energy

dependence will become more and more costly in the long

run without some development of home-grown alternatives

Better use of sugar cane as an alternative energy

resource could be a productive development amongst

several conservation and developmental paths to increased

island energy self-sufficiency. Jamaica has long

produced sugar cane -- Christopher Columbus is credited

with introducing sugar cane into this region in the 15th

century. Commercial sugar cane plantations and

processing facilities (factories or inqenios) have waxed

and waned here for more than 350 years.

The current contraction by 60 percent of sugar cane

production from the "high water mark" of record

production in Jamaica in the mid-1970's could be just

another point in the cyclical movement of Jamaica's long

production history. Even at present production levels

with its reduced sugar cane outputs, Jamaica grew and

harvested 2.234 million tons in the last crop year

(1984/85) and is estimating a slightly expanded

production for the current crop of 2.270 million tons to

be reaped and processed in 1985/86.

The near-term plan for this country is to further expand

that production, to meet the current export and domestic

sugar demand of about 242,000 tons by encouraging the

production of over 2.5 million tons of millable cane per

year, which will still represent the largest cropping

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effort on the island. This total does not include the

cane production that might be continued in support of

proposed fuel ethanol distillation operations at

Duckenfield or Bernard Lodge sugar factories. About

two-thirds of the national cane tonnage (1.7 million tons

each year) will be focussed on the production flows

through two milling facilities controlled by Jamaica

Sugar Holdings Limited (JSH) -- Frome and Monymusk. In

Jamaica, as elsewhere in the tropical band embracing the

Equator, sugar cane continues to be an important

traditional commercial crop with an opportunity to

provide some more home-grown energy as well.

In addition to producing a sizeable income for this

country (about US$70 million in annual turnover

[revenues] from the sales of sugar and molasses with

approximately 70 percent of that total or US$50 million

in hard currency earnings), sugar cane will concurrently

produce substantial amounts of biomass that would be a

source of continuing energy. As an example on an

island-wide basis, the croppings at the projected level would produce 750,000 tons of bagasse (i.e., the fibrous

residue of the processing of sugar cane) at an average

moisture of 50 percent. Bagasse at this moisture content

has the equivalency of a barrel of fuel oil to a ton; the

annual energy value of this amount of biomass resource

could then be equivalent to 0.75 million barrels of oil.

Unfortunately, very little of the considerable bagasse

now produced in Jamaica and used to generate process

steam and electricity is in excess of the direct needs of

the producing facilities. In fact, expensive quantities

of fuel oil and electricity are now imported to most of

these Estates and their factories to meet their

3-3

requirements. This is mainly due to the design and age of the power generating equipment in current use in the

nine Jamaican suqar factories, and the way the pcoduction

facilities are operated.

Theoretically, sugar cane croppings could provide substantially more useful biofuel than they do now, and become a more important generating source for the nation's electrical needs. The cane trash (barbojo) in a mature stand of sugar cane, that is now burned before harvest or left as a mulch in the fields, might annually

provide 0.625 million tons of added and practically

recoverable biofuel on a wet-weight basis in Jamaica from

a sugar cane crop of 2.5 million tons of millable canes. Although solar-dried barbojo has a calorific value that

is similar to or greater than bagasse, the practical recovery of a substantial portion of this renewable

energy resource will require,considerable development to realize its potential. There is a trash recovery system under consideration by this project (i.e., following manual cutting and mechanical loading of unburned sugar

cane, the cane trash tbarbojo] is solar dried and baled for deferred combustion in the non-grindinq period).

As part of the long-range strategy for sugar cane variety development in the Caribbean, directed at a net revenue

maximizing balance between its sucrose and calorific

values, the selection criteria will require some adjustment to more readily identify and promote those new

clones created with a high-performance/higher-fiber (also

lower juice and lower sucrose) character than was previously the case. The identification of high

performance (i.e., accelerated accumulation of tons

3-4

of sugar cane per unit of space [acre] and time exposure

[month] with optimal levels of inputs) but poorer juice

quality varieties for rapid propagation to

commercial-sized plantations may take some time to

accomplish. it will take even more time to make an

impact of several hundred thousands of tons of more

fibrous sugar cane annually available for processing in

this country. The objective of this genetic strategy is

to increase, over time, the amount of biofuel (bagasse

and barbojo) that would be available from a crop of sugar

cane, without reducing the amount of sugar and molasses

per acre-month that would be concurrently recovered. The

concept of trading increased calorific value for a

reduction in the sweetener value is not economic at

current prices for oil/electricity and sugar/molasses.

The current priority interest in Jamaica is, and should

be, to increase the production performance of field

yields by 50 percent or more as measured in tons of sugar

cane per acre for a crop (i.e., at the rate of 2.75

versus 1.83 tons of sugar cane per acre-month or TCAM

[6.68 versus 4.48 tonnes per hectare-month]) to regain

the output and profitability lev'ls of the past. Much of

the increased outcome is to be attributed to

yield-maximizing cultural inputs and handling, such as:

better drainage, improved tillage to increase the rooting

zone and water-holding capacity of soils, effective and

timely irrigation with good quality water, adequate and

timely crop nutrition, a growth environment free of

weeds, pests and diseases, a properly aged and ripened,

promptly reaped and transported sugar cane crop for

efficient processing into saleable products. Some of the

production gains may be credited to improved sugar cane

varieties, but most of the gains will be brought about by

3-5

improved farming in Jamaica. The increased cane tonnage

will provide more calorific resources as well as more of

the financially attractive sweetener component of sugar

cane under the favored market conditions enjoyed by

Jamaica.

The major purpose of this project is to evaluate the

technical and financial/economic feasibility of

installing a privately funded, new power cogeneration

facility at Monymusk, which is the second largest sugar

cane processing facility on the island. Monymusk shares

the manufacturing of sugar/molasses and the distillation of potable alcohol, for the productive agricultural area

of Clarendon in south-central Jamaica, with the

privately-owned facility at New Yarmouth. Monyinusk has

had a modest power generating capability installed four

decades ago that this proposal plans to replace. The

Clarendon sugar cane production area requires virtually year-round irrigation for its cropping, so the

electricity requirements to pump the needed water

resources for the cane fields causes this operation to

have a greater demand for power than other sugar

properties in Jamaica that rely on rain-fed production.

The installation of a "current-state-of-the-art", high

performance boiler/turbogenerator complex for Monymusk

would be an important step to greatly improve the amount

of steam and electricity that could be produced from

bagasse and barbojo supplies on an annual basis. It is

anticipated that there will be sufficient and regular

biofuel supplies to warrant a 35 MW power generator, so

as to allow Clarendon Sugar Company (Monymusk Factory) to be steam and electrical energy self-sufficient, and that

a substantial block of power could be made available to

3-6

the national electrical utility, Jamaica Public Service

Company (JPS) for their island-wide dispatch.

The crushing plant and boiling-house facilites of

Monymusk are in the process of being extensively

rehabilitated during the next five years under financing

provided by the World Bank. It is envisioned that the

efficency and productivity of the factory and the sugar

cane fields operated or influenced by the sugar company

(Clarendon Sugar Company, Limited -- CSCo.) will be so

improved as to allow CSCo. to produce and purchase

sufficient sugar cane to more profitably utilize its

effective factory capacity. The proposed power

generation facility will be sized to match that level of

sugar cane through-put to be grown, harvested and

processed in an extended campaign of 35 weeks or 206

operating days. The operation of the proposed power

generating facility for the 100 days during weekends,

holidays and the "off-crop" period to allow for a

year-around generating scheme, allows for 42 days for

scheduled maintenance and 30 days for forced outages.

Primarily fueled by biofuels (i.e., directly-fed bagasse

during the campaign and stored bagasse and barbojo during

the "off-crop" period) it will require that innovative

recovezy and storage techniques be developed and employed

in the next few years at CSCo.

The principal benefits which are anticipated to be

derived from the project include:

Elimination of The Current Government Subsidies to the Clarendon Suqar Company.

The installation of the new cogeneration facility to

supply low cost electricity and steam, together with

3-7

0

the complementary factory and field rehabilitation

project being carried out by the World Bank, will

return the mill and estate to higher profitability.

0 Reduction of Foreign Exchange Expenditures for Imported Fuel Oil.

The increased utilization of cane derived biofuels

will replace substantial amounts of imported fuel

oil for generation of steam and electricity and

thereby reduce Jamaica's dependence on that

commodity.

0 Private Ownership

The private ownership of the cogeneration facility

will attract debt and equity funding from private

sources which will alleviate the need to draw upon

the government's limited borrowing capacity to

finance future electrical generation capacity.

Private ownership and management will also reduce

costs and improve productivity.

* Increasing Employment

The increased volume of suqar

utilization of the barbojo as

for a significant increase in

Clarendon area.

0 Reducing Electricity Costs

cane for harvest, and

a fuel will provide

new jobs in the

The cogeneration plant will produce electricity at a

lower cost than some of the units currently included

in JPS' least-cost capacity expansion plan.

3-8

Introducing New Technology

The project will introduce advanced production

techniques and systems and will provide the training

to use them, thus providing technological proqress

for Jamaica.

3-9

4.0 MARKETING

4.1 SUGAR

Clarendon Sugar Company Limited (CSCo.) as a part of

Jamaica Sugar Holdings Limited (JSH), will market

its raw or 96 degree sugar through the newly

established Sugar Cane Products Association (SCPA).

SCPA has been set-up as the successor to the Sugar

Industry Authority's (SIA) current and lonq-standing

function of being the exclusive national marketeer

of both raw and refined sugar in and for Jamaica.

The Authority is to remain the only wholesaler of

refined sugar to domestic markets and that demand is

now about 35,000 tons each year. The sugar refinery

at the Monymusk Factory is scheduled to resume

production upon completion of Rehabilitation Project

Year 3 (1989) and increase its refined output to the

plant's capacity of 40,000 tons over three years or

by 1991.

The current market demand for raw sugar at favorable

prices, supported by encouraging governmental

action, is estimated to total about 207,000 tons per

year, as follows:

TABLE 4-1

Market 96 Degree Sugar Refined Sugar

Tons/Yr. Tons/Yr.

Domestic 65,000 35,000

Export UK (EEC) 125,000 USA 17,000 Export Total 142,000

Raw Total 207,000

4-1

FIGURE 4-1

Jamaica

140000

120000

100000

60000 - U Jamaica TONS.SUGAR 0 EEC

60000 ii-USA

40000

20000

1981 1982 1983 1964 1985 1986

Year

Raw sugar demand at a favorable price may be

anticipated to fall with a phased reduction or

sudden loss of the USA Quota. Similar quota

adjustments may also be made by the EEC as Jamaica

has been importing its refined sugar requirements

for three years now in contravention of the Lome

Accord. Domestic raw suqar demand is anticipated to

rise at a modest rate in response to the population

growth without a change in the consumption pattern

in Jamaica. The growth of the Jamaican population,

as shown below, is forecasted at a lesser rate of

growth than was experienced during the past decade

(1976-1985) or at 1.12 percent versus 1.46 percent

4-2

I4

in net population change per year. The domestic raw

and refined sugar consumption rate, on a raw sugar

equivalent basis, is high at 96.3 pounds per person

per year and is expected to stabilize in the future

at about that level.

The estimated domestic consumption, on a raw sugar

equivalent basis, for the project period is shown

below and displays a very modest expansion

(averaging 12,000 tons in growth per decade) of the

long term demand for sugar in Jamaica. With

carefully controlled production in balance with

expected demand, at favorable prices, the sugar

produced by this project should be readily sold.

TABLE 4-2

Period Mean Population Local Consumption (96 Deg. Tons/Year)

1985 2,325,500 100,000

1985/90 2,386,700 102,610

1990/95 2,550,300 109,640

1995/00 2,692,900 115,770

2000/05 2,825,400 121,470

2005/10 2,965,300 127,480

2010/15 3,105,400 133,500

4-3

FIGURE 4-2

JAMAICA /PROJECTIONS

140 _

120 L 0-I JAMAICA /PROJECTIONSEEC 100 - USA

80 Consumption ('000)

60

40

20

0 1985 1990 1995 2000 2005 2010

Year

The current 96 degree sugar production capability

was estimated at 207,000 tons at the start of this

crop (1985-86 Harvest Campaign). This year's

estimated total is up slightly from last year's

results. The very heavy rains and extensive

flooding during early June 1986, as 27.5 percent of

the crop remained to be reaped and processed into

sugar, has caused the estimate for the current

year's production to be adjusted downward. The

reduction is yet to be fully quantified.

The following table shows the current and future

Jamaican production capability per year:

4-4

TABLE 4-3

1984-85 1985-86 1990-91

Factory Actual Estimate Estimate

Frome 57,048 58,530 91,000

Monymusk 26,652 '2,000 68,700

JSH 83,700 90,530 159,700(1)

Long Pond 15,336 15,430 - (2)

Bernard Lodge 23,654 19,510 - (3)

Duckenfield 7,534 7,110 - (3)

NSCo. 46,524 42,050 -

New Yarmouth 25,842 24,500 24,500

Appleton 13,995 12,390 12,390

Worthy Park 22,242 22,100 22,100

Hampden 14,404 15,430 15,430

Private 76,483 74,420 74,420(4)

Totals 206,707 207,000 234,120

Footnotes:

(1) Upon rehabilitation, JSH will have about 68,170 tons more output at profitable levels.

(2) Long Pond may be closed as excess capacity and its production not being cost-effective; this closure may be reversed with any continuation of the USA Quota at about the 15,000 ton level.

(3) Bernard Lodge and Duckenfield are now scheduled for closure or redeployment as ethanol producing facilities.

(4) This total assumes that all private factories keep their costs in line although certain smaller operations may become increasingly marginal as they approach the 1990's.

4-5

The current under-supply of 35,000 tons of 960

sugar per year in Jamaica should balance out with

adjustment in the early 1990's provided that only

the USA Quota is removed and Lond Pond or the

equivalent production (about 15,000 tons) is

reduced. Production in excess of the protected

market will be only able to command the less

favorable World Sugar Prices. Favorably priced

Jamaican domestic and export demand for certain

levels of raw and refined sugar should exceed the

adjusted local production during the project period

(1990-2010).

FIGURE 4-3

PRODUCTION FIGURES/ SUGAR(JAM.)

400

350

300

PRODUCTION ('000)

250

200

PRODUCTION FIGURES/ SUGAR(JAM.)

150 []EXPORT MARKETS

100

0 - -' 76 77 78 79 60 a1 82 3 a4 85

YEAR

4-6

The world price for raw sugar is expected to remain

depressed below the production costs of the most

efficient producers during the first decade of the

project period. The World Bank projections indicate

that for the next three years (1986, 1987 & 1988) an

average price below 9 U.S. cents per pound [19.8

U.S. cents per kilogram] in constant 1985 dollars

can be expected. Currently, sugar prices on this

market have risen then fallen to under 5 U.S. cents

per pound and this sudden change after a deep drop

in price to 2.74 U.S. cents [6.04 U.S. cents per kg]

in 1985 may be temporary. The long-term forecast by

the World Bank is that raw sugar will average 10.3

U.S. cents per pound [22.71 U.S. cents per kg] in

the next decade, 1986-1995, and that will nearly

match the price average of the previous decade,

1976-1985, of 10.6 U.S. cents per pound [23.37 U.S.

cents per kg].

The surplus pricing of bountiful raw sugar stocks

(an oversupply of about 9.75 million tonnes, or ten

percent of the annual world-wide consumption, held

in addition to the routine level of stocks, set at

about 30% of the consumption or 29.25 million tonnes), will restrain the project's sugar revenues. This impact on the sugar price the

project receives will be in spite of the fact that

its output is to be entirely sold on protected

domestic and export markets.

The raw sugar price forecast of the 1985-86 year of

operations now in progress in Jamaica aggregates the

4-7

returns per ton at about US$300(l) (US13.4g/lb) from the United Kingdom (EEC), just over US$400(2)

(US17.80/lb) from the USA and US$333(3) (USI4.90/lb)

from domestic siales of raws. The composite return after domestic handling expenses is about US$ 301

per ton(4) (US13.40/lb).

This return is further reduced by industry assessments'for shared expenses (Sugar Industry

Authority, Sugar Industry Research Institute, etc.) of US$13.89 per ton (6.2 mills/ib) leaving an

ex-plant return of about US$286 per ton (US12.70/lb). The sugar return per ton used in this

evaluation is JA$1,724 (US$313.50) (5).

The aggregate return for raw sugar is disbursed by

SIA in three or four payments during the production year and the "off-crop" period. The disbursements

are allocated on a split of 1/3 : 2/3 between cane millers and cane growers. This "Guaranteed Sugar

Price" is augmented by a "Cane Grant" to growers, a "Milling Grant" to millers and an "Additional Cane Subsidy" to growers. The estimated factory and farmer split for the current year is as follows:

Footnotes:

U.S.$/Tonne U.S.0/kg

(1) 295 29.5 (2) 394 39.4 (3) 328 32.8 (4; 296 29.6 (5) 5.5 to $1.00 Exchange Ratio

4-8

http:US$313.50http:US$13.89

Factory Farmer

JA$652.93 37.87% JA$1071.32 62.13%

The return for raw sugar during the project period

is not expected to change much, in real terms, nor

is the factory/farmer split expected to change

either.

The domestic market for refined sugar is controlled

by SIA as to the amount allowed into the market and

tne pricing is set by the government. The refinery

at Monymusk will be restarted in 1989 to displace

the current importation of white suqar. The level

of production has been established, and the

estimated refining price allowance for the refined

product is US$21.43 per ton (9.6 mills/Ib) for total

return of US$334.93 per ton of refined sugar.

4.2 MOLASSES

The six rum distilleries in Jamaica utilize nearly

all of the annual molasses output of the nine sugar

cane factories currently in operation. A very small

amount of molasses is sold for other local uses.

The distillery requirements in the future will

exceed local production by 30,000 tons annually and

this year the Spirits Pool Association is importing

9,000 tons of molasses to assure adequate feed

stocks. The domestic market demand for molasses

during the project period should be strong as

derived from the growinq demand for Jamaican rum.

4-9

http:US$334.93http:US$21.43http:JA$1071.32http:JA$652.93

The distillery at the Monymusk Factory requires

about 20,000 tons of molasses per year to operate in

its maximum efficiency range. This operating

requirement is matched to the level of molasses

output of the sugar cane processing o.eration at its

optimizing range.

The ex-plant price for molasses is set on the New

Orleans market, less the cost of local transport to

the port and ocean transport to the market including

insurance. The price currently returns roughly

one-half the New Orleans price as transport costs

amount to U.S $28 per ton and the price in the

market is U.S.$55.94.

4-10

http:U.S.$55.94

4.3 ELECTRICITY

Introduction

In addition to sugar and molasses, electric power

will be a product of this cogeneration project at

the rehabilitated Monymusk Factory. As envisioned,

the surplus electric power(l) would be solId to

Jamaica Public Service Co. (JPS). After adjusting

for plant auxiliary loads, this would amount to

approximately 19 MW of net power available during

the harvesting season and 32 MW during the

off-season. (2) It is important therefore to

establish the market pro3pects for electricity in

Jamaica in the 1990's, when power from this project

would be commercially available. In this section

the outlook for electricity is reviewed based on

recently developed projections by others. In

particular, a recent study completed by Montreal

Engineering Company, Ltd. (MONENCO) entitled

Least-Cost Expansion Study - August, 1985 prepared

for JPS, provides the basis for much of this

section. The study, which was completed in 1985,

included a detailed market survey and forecast. In

addition to this study, more recent information

concerning the economic outlook in general, and the

use of electricity in particular, were developed

Footnotes:

(1) Power available for sale after satisfying the needs of sugar cane production and processing.

!2) Gross capacity - 21 MW during the process season and 35 MW during non-grindinq period.

4-11

through interviews with JPS as well as other key

institutions.

The power grid in Jamaica is interconnected; hence

the market for electric power is essentially a

national one. Accordingly, this project will be

analyzed within that context. The current structure

of the power market and the historic trends in

electricity use are presented in the following

section. The next section sets out the various

forecasts for electricity use and the impact this

project would have on the supply of electric power.

Lastly, estimates of the avoided cost of electricity

for future units in JPS are presented.

Current Use of Electricity

The production and distribution of electricity is

presently the responsibility of JPS, which was

granted an exclusive, all-island license in 1978.

The license gives JPS authority to supply power to

all areas of the island for a thirty-nine year

period. The license stipulates that JPS is subject

to the Ministry of Public Utilities, which has power

to regulate its rates and insure performance under

the terms of the license.

JPS owns approximately 65 percent of the total

generating capacity in Jamaica, which amounted to

approximately 449 MW of available capacity in 1984.

The JPS system is largely dependent on fuel oil with

the exception of 21 MW of hydro-electric capacity.

The balance is owned primarily by industrial users

for on-site power needs. The distribution among

these users is as follows:

4-12

Bauxite/Alumina 168 MW

Sugar 30 MW

Cement 14 MW

Total 212 MW

In 1984, total sales on the JPS system totaled 1,156

GWh (million kilowatt hours). Table 4-4 sets out

the distribution of these sales among the various

classes and customers, as follows:

TABLE 4-4

1984 SALES OF ELECTRICITY

(GWh)

Sales (%)

Customer Class Sales Distribution Customers

Residential 368 32% 222,895

Commercial &

Small industrial 515 45% 24,112

Large Commercial

& Industrial 142 12% 22

Others 131 11% 2,160

Total 1,156 100% 249,189

Commercial and small industrial users comprise the

largest consuming group in terms of sales, followed

by residential. Large commercial and industrial

users, while in third place of total sales,

typically have on-site power qeneration capability,

4-13

which reduces their power requirements

significantly. In terms of average u:'e per

customer, the industrial sector ranks first, as

might be expected, followed by others, commercial

and sIall industrial, and lastly residential.

Total net generation amounted to 1,440 GWh in 1984.

Sales accounted for 80 percent, while company use

accounted for 1 percent, and accounted-for losses

comprised 19 percent. Gross peak demand was

approximately 255 MW in 1984.

Historic Trend in Electicity Use.

Figure 4-4 sets out the sales of electricity for the

major customer classes from 1965 to 1983. Over the

entire period total sales have grown at an average

annual rate of 5.72 percent, however, this rate of

growth has not been continuous. Four overlapping

periods can be identified:

0 1965-1972 - This was a period of relatively

rapid growth with total sales increasing at an

average rate of 12 percent, due to new system

expansion and low prices.

* 1972-1978 - This period was characterized by

moderate growth, with total sales increasing at

an average annual rate of 3 percent, due to a

reduced rate of additions and slower economic

growth.

* 1978-1981 - A period characterized by a decline

in sales, averaging -3.6 percent per year, due

4-14

10'

to a rapid rise in prices and declines in

economic activity.

* 1981-1983 - A period characterized by increases

in sales at an average annual rate of 7 percent,

due to the economic growth rebound.

As indicated above, the influence of the level of

economic activity on electricity sales has been an

important one. Another indicator of this

relationship is the ratio of per capita electricity

use to per capita gross domestic product (GDP),

which is set out in Figure 4-5. The trend portrayed

is one of increasing intensity of use up through

1976 and a levelling off in subsequent years. The

trends described above are reflected in the sales

trends for each of the major customer classes, as

shown in Figure 4-4. Key factors influencinq each

class of customer are summarized below:

0 Residential - From 1965 to 1972 the number of

customers increased by 75 percent. Increases of

56 percent, 17 percent and 6 percent were

experienced over the periods 1972-1978,

1978-1981, and 1981-1983 respectively. Average

use per customer grew by 7 percent during the

1965-1972 period, then declined by 5 percent per

year between 1972-1978, and grew moderately

thereafter. GDP per capita increased from the

sixties to the early seventies at an average

annual rate of approximately 6 percent and has

declined thereafter at an average rate ot 2

percent.

4-15

19

0 Commercial and Industrial - Sales to these

sectors are influenced by customer growth,

intensity of use, and the overall level of

economic activity. The number of customers

increased by 44 percent' from 1965 to 1972 while

smaller increases of 20 percent and 2 percent

were experienced during the periods 1972-1981,

and 1981-1983 respectively. Average use per

customer increased at an average annual rate of

6 percent from 1965-1972, then declined at a

rate of 2 percent per year thereafter. The

level of economic activity for these two

sectors exhibited moderate growth through the

early seventies and declined over most of the

period through 1980. From 1980 to 1983 a

resumption of growth occured in both sectors.

Another factor which has affected the sales of

electricity has been the level of rates established

by JPS. Figure 4-6 sets out the trend in average

revenue per kWh for the major customer classes on a

constant dollar basis for the period 1970 to 1983.

With the exception of the early part of the period

prices have increased in real terms until 1983 when

prices did not keep pace with inflation and

consequently declined in real terms. More recently

there have been significant increases in prices both

in 1984 and 1985 according to discussions with JPS.

A comparison of price chanqes with changes in

average sales per residential customer is set out in

Table 4-5. In the early portion of the period sales

increased while prices did not increase in real

terms. In contrast the period 1973 to 1981 was

4-16

characterized by significant increases in real

prices and significant declines in the average per

customer sales. Sales again rose in 1981-1983 while

prices again declined in real terms. More recently,

although data is unavailable, sales per customer

have exhibited some declines in response to the

price increases in 1984 and 1985, based on

discussions with JPS.

TABLE 4-5

COMPARISON OF AVERAGE SALES AND REVENUE

PER CUSTOMER FOR RESIDENTIAL CUSTOMERS

PERCENT CHANGE PERCENT CHANGE PERIOD IN SALES IN REVENUE

1970-1973 14.8% 0 1973-1981 -37.1% 97.8% 1981-1983 9.6% -3.4%

Source: MONENCO Report to JPS

Electric Market Outlook

This section reviews the potential market for

electricity in Jamaica to the year 2000, based upon

existing forecasts. These are evaluated in light of

more recuat information and conclusions are drawn

with respect to the most likely prospects for market

growth.

Figures 4-7 and 4-8 summarize three separate

forecasts prepared by JPS, the Ministry of Mining,

Energy and Tourism (MMET) and MONENCO showing net

generation and peak demand respectively. The first two were prepared in 1983 and are provided as

4-17

reference points while the latter was completed in

1985 and therefore provides a more current

assessment.

JPS and Ministry Forecasts - The JPS forecast was

prepared based upon historical relationships over

the period 1964 to 1978. As shown on Figure 4-8,

gross peak demand was projected to grow at an

average annual rate of approximately 5 percent,

reaching 318 MW in 1990 and 557 MW in 2000, compared

to an actual peak of 256 MW in 1983.

The MMET forecast was presented as part of a study

the purpose of which was to present national energy

policies and programs. The forecast was based on a

planning model. The MMET forecasted peak demand to

grow at an average rate of approximately 6 percent

per year reaching 373 MW in 1990 and 711 MW in

2000. A key assumption underlying this forecast was

the rate of growth in constant dollar GDP, which was

assumed to grow at 5 percent per year.

MONENCO Forecasts - A more recent assessment of the

electric power market outlook was prepared by

MONENCO as part of its least cost expansion study

for JPS. This study has two advantages over the

previous studies described. First, it is based on a

comprehensive survey of power users in the country,

coupled with an analysis of both economic and

demographic factors which will influence future

power use. Second, it is a more recent projection

and therefore reflects the latest policies and

general economic conditions. Accordingly, this

projection is perhaps a better indicator of the

future power market.

4-18

As shown on Figure 4-8, a range of forecasts was

prepared by MONENCO consistinq of a best estimate of

JPS sales and net peak demand (i.e., excluding

station service requirements). In addition, a high

and low estimate of net peak demand was prepared.

The best estimate was developed primarily on a

judgemental basis concerning the future rate of

customer connections, the growth of average sales

per customer and the total sales for each customer

class. The forecast of net peak demand was

developed by applyinq the expected values of future

load factor to the projection of JPS net

generation. The low and high forecasts were

judgementally estimated variations from the best

estimate forecast. The major assumptions underlying

the MONENCO forecast are set out in Table 4-6, as

follows!

4-19

TABLE 4-6

MONENCO FORECAST ASSUMPTIONS

LOW BEST HIGH PARAMETER ESTIMATE ESTIMATE ESTIMATE

GDP GROWTH(l)

1983-1993 1.3% 2.5% 3.3%

1993-2003 2.0% 3.0% 4.0%

POPULATION GROWTH

1983-1993 1.0% 1.3% 1.7%

1993-2003 1.0% 1.3% 1.7%

CUSTOMER GROWTH

1983-1993 N/A(2) 2.0% N/A

1993-2003 N/A 1.9% N/A

Footnotes:

(1) Constant dollar growth rate (2) N/A - not available

Source: MONENCO, Least-Cost Expansion Study,

Table 9-15

When the above information is evaluated in light of

more recent information obtained through interviews

with key agencies, it is believed that the low and

best estimate forecasts, as shown on Figure 4-8,

bracket the probable market size, while the high

estimate is unlikely to be attained. This

conclusion is based on the following observations:

0 Historically the economic evidence as reviewed

above does not support the rate of development

implied in the high estimate.

4-20

" The austerity measures proposed by the

International Monetary Fund (IMF) and agreed-to

by the GOJ may restrict growth, at least in the

short term.

* The two major sectors of the economy that have

provided the impetus for growth - sugar and

mining - are not likely to rebound over the next

several years. The development of a light

manufacturing sector will probably take longer

to emerge than envisioned by government planners.

A countervailing factor will be lower oil prices

which will have an impact on all consuming sectors

through increases in disposable income as well as

lower energy costs. This will to some degree

increase the demand for electricity. This impact

can be illustrated by considering JPS's rate

structure. Based on the fuel adjustment clause, and

assuming a 50 percent decline in oil prices, the

averaqe savings per residential customer would be

approximately J$22 per month (US$4 per month) based

on average residential consumption.

The extent of the increase in electricity demand is

unlikely to be large in the short run, as demand

tends to be inelastic. The longer run effects could

be larger, depending on expectations of future oil

prices. Given the outlook for oil prices developed

in this report, the impact will be to increase

electricity use. Takinq the combined effects of

these factors under consideration would result in

demand tending to the "best estimate" forecast.

4-21

Given the above, the prospective market for

electricity in terms of sales, as projected by

MONENCO, will range from 1432 GWh to 1586 GWh in

1993, and 1672 GWh to 2045 GWh in 2003. The 1993

market represents an increase of 24 to 37 percent

over the 1984 sales level, while the market in 2003

will be 45 to 77 percent larger than 1984. In terms

of peak demand, the relevant forecast range is 284

MW to 314 MW in 1993, and 332 MW to 405 MW in 2003.

Compared to the 1984 peak demand of approximately

255 MW this represents an increase of 11 to 23

percent for 1993 and 30 to 59 percent for 2003.

In order to meet the projected growth in demand

through 1993, a total of 110 MW of new capacity

would be required, according to the MONENCO report.

The following specific recommendations, with respect

to generating capacity, were made by MONENCO based

upon their least-cost expansion analysis:

" Rehabilitate two gas turbine units in 1985

1986;

" Convert two oil-fired units to burn pitch in

1986;

* Install a 22 MW gas turbine for commercial

operation in 1991;

" Install a 22 MW gas turbine for commercial

operation in 1992;

" Install two 66 MW coal units for commercial

operation in 1993:

* Install feasible hydro-electric stations over

the period 1985-1993;

* Start construction of new base-load plant

required for installation in 1994 and beyond.

4-22

Avoided-Cost Assessment

Given the above, it is assumed that both coal and

oil will be viable options for future capacity

expansion. Accordingly, the potential for selling

surplus power to JPS would depend on the avoided

costs of these new units. If surplus power is

available at a price equal to or below this level

then, other issues aside, a definitive market should

exist.

This section assesses the avoided cost of power to

JPS based on the incremental unit concept; e.q.,

the costs avoided by JPS by not having to add a

particular unit of capacity. In this analysis three

specific units are evaluated - a base-load coal

unit, a base-load oil unit and a peaking gas turbine

- in order to provide a range of estimates.

The following procedure was used to estimate the

avoided unit cost:

* The basic cost data for each unit was taken from

the MONENCO report for the following units:

-66 MW Coal unit

-66 MW Oil unit

-22 MW Peaking gas turbine

* The cost data for the units, as presented in

Tables 8-2, 8-3, and 8-6 of the MONENCO report,

was adjusted as follows:

4-23

- Capital costs were escalated by 2 percent per

year to adjust to a 1986 oasis.

- Operating Costs were escalated by 10 percent

per year to adjust to a 1986 basis.

- The local currency component of costs was

adjusted for the exchange rate difference

between 1984 and 1986.

" An additional cost of 12 million US Dollars was

allocated to the coal unit to reflect the cost

of a coal port. The total cost of the coal port

was estimated at US$61 million, reflecting a

1984 estimate of $58 million which was escalated

at 2 percent per year. The original estimate is

presented in Table IV-2, pg. IV-13, USAID report

No. 598-0606. Non-Utility Generation of

Electricity in Jamaica: Opportunities, Needs,

and Impediments, December 1984.

* The resultant costs were then used in a revenue

requirement model to estimate the levelized cost

of power in 1986 US Dollars. Average financing

terms are similar to those assumied for the

project analyzed in this report in order to

provide a consistent estimate. A 15 percent

return on equity (ROE) is assured; no tax

holiday was assumed, since JPS typically would

not qualify for one.

A final adjustment was made for fuel prices. The

MONENCO assumptions are shown as follows:

4-24

TABLE 4-7

MONENCO FUEL PRICE ASSUMPTIONS

Real Base Price Escalation Rate

Fuel (1986 US$) 1987 - 2000

Bunker C $25 - $30/barrel 3.0% - 5.0%

Diesel Oil $35/barrel 3.0% - 5.0%

Coal $50.26/Ton 0.4% - 0.9%

The MONENCO study relied on World Bank projections

of fuel prices developed in 1984. Given the current

world oil situation, a more realistic estimate,

assuming OPEC is unable to effectively regroup,

would place oil prices in the realm of $20-32 per

barrel by 2000, at 1986 prices (see Section 4.4)

The coal price projections appear reasonable given

the continued and expected worldwide surplus of

coal. This fuel's price will continue to be

determined by supply-related factors as discussed in

Section 4.4.

The results of the avoided cost estimate are

presented in Table 4-8.

4-25

TABLE 4-8

ESTIMATED AVOIDED COST FOR JPS

FOR FUTURE CAPACITY EXPANSION

(1986 U.S.$)

1986 U.S.$ Levelized Cost

Unit Type (cents/kWh)

Coal - Steam Electric(l) 8.3

Oil - Steam Electric(2) 6.6

Oil Fired Gas Turbine(3) 8.7

Footnotes:

(1) Includes coal infrastructure (2) Assumes "likely" oil price case - see Section 4.4 (3) Peaking unit

Conclusions

Based upon the above information the following

conclusions can be drawn with respect to the

electric power market in Jamaica and the

opportunities for this project:

" Jamaica's electricity needs will continue to

grow although this growth will be at a low to

moderate rate.

" Given this growth present generating capacity

will be insufficient to meet future needs by

1993.

4-26

\K

* Approximately 110 MW of new capacity has been

recommended to meet these needs by 1993.

The estimated avoided cost of power for JPS for

future capacity expansion is estimated to range

from 6.6 to 8.7 US cents per kWh based on the

incremental unit concept.

4-27

FIGURE 4-4

j-FG sales

mv1illioms of Kvh)

1400

... ..........I o................ "Total Sales

O0 '..... ............ ...... .............. l.... .. o.

e: ................... ......

IttI

21DO

05 67,9 71 73 75 77 79 81 3

Sor Ek6 Pr

FIGURE 4-5

Electnicity FWit

.... ....... .............. .... ........A...0.3" "

0.6.......

. o l oA .,-0.6 ...................

e

. . 0 .. .. e 0 .......ooo

oe o...... . .. . .. . oo. .... . . .. . .

. . . . . .. o o e o o oO A . ............. ...... .. ................ 4. V16Avg. 4trLo Gowth pate 6-3

81 E3377- 79 10 7 -770E19 71 -3

Sxrum pepcr8

FIGURE 4-6

Average Fbvenue Ftr, WLorrn Q-ta-it 1-,,'5 cents/ktvh

-L -- oagrr- Flmickt "tl ST11 Q3Tm :10

- ....... .. .....B....................................

-4,U . -..6.... .... .. ...................

ro ...........

.. .... _,'I _ . ......... ....................... k- 1""t--- - /4 .................-..

.. ... .......ee.....e~...4............... -r"7 ................................. .. ..

....................................................... .......2 - * ...........

7B 80 8274 7670 72

FIGURE 4-7

r' FomcastsE-lectric FbV ,tt Gefmration NA11ion kv47

........................................4..........

4 ........... .

3 ............ . . . . . . . . . . . . . . . .

....... . ....................

2 .......

............................

19S7 iI

V43,,IX HM-FS

NmD Ho

au em Pay

FIGURE 4-8

Fectric Fower FcreWstS Qxxs Foj< EbTrd (e4

mmummon

199Do-o.m-...1993

M33_t tW 'Wixo"amv-o

4.4 ENERGY PRICES

Introduction

This section sets out the projected prices for oil

and coal and the associated rationale underlying

those projections. The project evaluated in this

report will rely on residual fuel oil as an

augmenting fuel. Coal is considered only in that it

presents an alternative fuel source for new power

qeneration under consideration by JPS and thus plays

a role in the avoided cost analysis presented in

Section 4.3.

Oil Prices

The residual oil price projections set out herein

are based on a projection of crude oil prices.

Typically residual fuel oil is priced below the

price of crude oil. For this analysis it is assumed

that residual will be priced at 85 percent of the

price of crude oil. in mid-1986 the average price

of crude was approximately US$15 per barrel.

Residual fuel oil in the US Gulf Coast area, the

pricing basis for Jamaican residual fuel oil, had a

price of approximately US$12.25 per barrel at this

time, which was approximately 82 percent of the

price of crude. If US60 per barrel is added for

transportation to Jamaica the ratio of residual to

crude is approximately 86 percent. Accordingly the

85 percent residual to crude relationship appears

appropriate.

4-28

http:US$12.25

Recently, world oil prices have declined by over 50 percent from their peak in 1981. A number of

factors have contributed to this decline:

" Demand for oil has languished since 1979.

* The Organization of Petroleum Exporting

Countries (OPEC) has effectively lost control of

the market while its members exceed their

production quotas.

* Oil pricinq has become more like a traditional

commodity.

Barring a crisis of worldwide proportions, it seem

highly likely that traditional market forces will

act to firm the oil market in the near future.

Given this situation three crude oil price scenarios

were developed to capture the range of uncertainty

attending oil markets. The forecasts are inset out

Table 4-9 as follows:

TABLE 4-9

CRUDE OIL PRICE SCENARIOS

(1986 US$/BARREL)

Growth Rate

1986 1990 1995 2000 1986-2000

Lower Case $15 $16 $18 $20 2%

Likely Case $15 $18 $22 $26 4%

Upper Case $15 $20 $29 $32 6%

The lower case represents essentially a continuation

of the current market situation coupled with slower

long run economic growth, which includes a major

4-29

recession in the 1986 to 1995 period. Furthermore

it assumes OPEC remains in disarray, unable to

achieve any unity whatsoever. Alternative fuels

such as natural gas and coal are expected to remain

in oversupply during the 1986 to 1995 period and

then come into balance.

The upper case represents a market situation where

economic growth is high, three to four percent in

the developed countries and 6 to 8 percent in

developing countries. The case assumes that OPEC is

unified and that non-OPEC supply lags in responding

to increases in oil demand due to reductions in

exploration and development. Accordingly OPEC

capacity utilization increases substantially,

thereby setting the stage for significant increases

by 1995.

The likely case, which is used in the evalution of

this project, probably represents the most stable of

the three scenarios. In this case, slow to moderate

economic growth prevails with minor cyclical

downturns. Oil demand is expected to continue to

exhibit slow growth. With respect to crude oil

supply, the Saudi Arabians are expected to establish

their position as the major world source of crude

oil, and price crude in accordance with their

position as low cost supplier. OPEC in this

situation will become a loosely knit organization.

Alternative sources of crude oil supply will lag in

development due to price suppression between 1985

and 1990.

Translating the above crude oil projection for the

likely case to a residual fuel oil projection is

4-30

shown in Table 4-10, along with a distillate price

projection. The distillate price is computed based

on the relationship with crude in 1986,

approximately 30 percent above the price of crude.

TABLE 4-10

PROJECTED PRODUCT PRICES - LIKELY CASE

(1986 US$/BARREL)

1986 1990 1995 2000

Residual 12.75 15.30 18.70 22.10

Distillate 19.50 23.40 28.60 33.80

Coal Prices

The coal market is subject to less uncertainty than

the world oil market. Consequently a directional

forecast is used which assumes stable prices

throughout the period using a base price of US$53

per ton found in the Montreal Engineering Company

Limited's (MONENCO) Least-Cost-Expansion Study -

August, 1985 for JPS.

Currently, the coal market is characterized by

oversupply. Prices have been stable since the

mid-seventies. It is important to recognize however

that coal is very much affected by regional factors.

In other words, there is less opportunity for any

group of countries to control output and/or price.

This is demonstrated in Table 4-11 which shows the

distribution of the non-communist world coal

reserves.

4-31

TABLE 4-11

WORLD COAL RESERVES

Total = 377 BILLION TONS(1)

North America 34%

Western Europe 11%

Far East 39%

Africa 16%

100%

Footnote:

(1) Excludes lignite and sub-bituminous

Not reflected in Table 4-11 above are the relatively

new reserves beinq developed in South America which

will add an important new dimension to the regional

supply of coal in the Southern Hemisphere and act to

further increase competition and constrain price

increases.

The rationale for assuming stable prices reflects

three considerations. First, the coal industry will

continue to face overcapacity into the 1990's. This

will be exacerbated by lower oil prices, which will

impact coal conversion schemes worldwide. Secondly,

coal more than any other fuel is a commodity-driven

business where the low cost producer has the

strategic advantage. Given this situation coal

supply-demand patterns in any particular regional

market will gravitate to the producer who can supply

the lowest cost product. Finally, the procurement

4-32

of coal is predominantly performed under long term

contracts rather than on a spot market basis. This

factor adds another element of stability to the

market.

Given all of the above, the projected price of steam

coal is set out in Table 4-12, a showing real

escalation of 0.5 percent per year.

TABLE 4-12

PROJECTED STEAM COAL PRICES

(1986 US$/TON)

1986 1990 1995 2000

Steam Coal $53.00 $54.00 $55.43 $56.83

4-33

5.0 FACILITY DESCRIPTIONS

5.1 CANE PRODUCTION

Geographical Location

Monymusk is in the Clarendon Plains of Jamaica on

the southern extremity of the central Parish of

Clarendon. As seen in Figure 5-1, it is located 45

miles west of Kingston via roads through Spanish

Town and Old Harbour. The sugar cane producing area

is bounded by the Caribbean Sea along the southern

coast, then inland along the Milk River as the

western boundary. The northern edge of the plain

runs through May Pen to Old Harbour Bay, on the

eastern boundary, which runs along the coastline

past the Salt River to the Rio Minho. In addition,

the Monymusk factory receives cane hauled 25 miles

west from the Innswood estate in St. Catherine

Parish, which was formerly milled at Bernard Lodge.

Climate

Jamaica's climate is generally warm and humid.

Insolation is ample for growing crops year-round on

the coastal plains of the Clarendon and St.

Catherine Parishes. Thunderstorms produce the most

significant rainfall in the early summer and autumn

seasons. Almost 60 percent of the annual rainfall

occurs in two periods, May - June and September -

October, with precipitation occurring during only 14

days of heavy rains each year. The frequency of

hurricanes hitting Jamaica is very low; the

probability of an occurrence is only once in ten

years.

5-1

Soils and Drainage

The Clarendon plains form the largest single

agr